Economic Growth in Venezuela: Policies vs oil wealth

This paper presents an empirical analysis of Venezuela’s economic growth in
the last several decades, providing possible explanations for the country’s weak
performance relative to its peers. First, a growth accounting exercise uncovers
a long, negative trend in total factor productivity from the late 1970s through
the early 2000s. This trend was also accompanied by a declining ratio of capital
stock per worker, attributable to an earlier period of misguided policies that
favoured excessive accumulation of physical capital to the detriment of human
capital and economic efficiency. Second, empirical tests suggest that Venezuela’s
economic growth has been highly and increasingly dependent on oil revenues.
Finally, econometric estimates indicate that lax fiscal policies and macroeconomic
instability have had a negative impact on growth.